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[TTHQ Staff]

Jerry Favors Analysis - Friday, June 17, 2005 8 p.m.

Last week we stated that our work allowed for a rise near or just above 10700 on the Dow. At the highs today the Dow was up 78 points, reaching a print high for the day of 10656.29. The Dow closed up 44.42, at 10623.07.

For the most part our position here remains unchanged. We allowed for a rise near or just above the 10700 area in this time frame, and we have rallied up near that area today. Some further rise closer to or just above that 10700 area is likely early next week, but that would not in any way alter our forecast for this time frame. However, at this point we must now be on the alert for any possible clues that the high we expect in this time frame has been seen.

The first potentially negative signal on Monday will be any decline below 10579 on a print basis on the Dow, and 2085 on the Nasdaq. An equivalent signal on the S&P 500 would be given on any decline below 1213. If the preceding levels are broken early next week, that would not prove that we have seen the next important high, but that would signal that an even stronger decline, or correction is coming at some point early next week.

On Monday, if the Dow falls below 10579 on a print basis the next important support would come in at 10473 on a print basis and 10437 intraday. If the Dow also falls below those two key levels any day next week an even stronger decline should follow at least over the next few days. That would then suggest a test of the most important support levels on the Dow at 10430 on a print basis and 10410 intraday. If at any point next week the Dow falls below those lower levels of 10430 on a print basis and 10410 intraday, the odds will then be high that the current rally phase off the April 20 lows this year has ended, and a far more serious decline in stock prices is now underway.

For now, we want to give the upside the benefit of the doubt for at least the next one or two days, but our bottom line position for the coming weeks and months remains unchanged. We still look for significantly lower prices in all of the major indices between here and the end of this year.

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